Why Kelly Rutherford’s bankruptcy should make you more prudent about your finances

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Kelly Rutherford is an actress. Not just an actress, but a working actress. She is not a familiar looking extra or an actress who frequently guest stars on television, but someone who has appeared as a series regular on multiple high profile shows since the 1990s. She recently ended a six-season run on the CW hit “Gossip Girl.” This all makes the recent revelations of her bankruptcy that much more surprising. How does someone who has made it in an ultra-competitive, well-compensated field end up with over $2 million in debt? There are several lessons that we can learn from Kelly Rutherford’s unfortunate bankruptcy.

1. Divorce not only has an emotional cost, but can also have a steep financial cost The vast majority of Kelly Rutherford’s debt is related to her divorce and custody battle with her ex-husband German businessman Daniel Giersch. The legal battle with her ex-husband has cost her over $1.5 million.If you are considering getting a divorce, be cognizant of the fact that divorce proceedings may end up being expensive. Between attorney fees and court costs, your expenses can quickly ramp up. Try to have an objective assessment of how you expect the divorce proceedings to go. Do you expect the divorce to be amicable or acrimonious? If you have children, do you expect that you and your spouse will battle for custody? Do you have a plan in place to divide the marital assets? The more questions you can answer and plan for before divorce proceedings occur, the better chance you will have of keeping your costs down.

2. Have a plan for paying your taxes

In addition to the $1.5 million in legal fees, Kelly owes $350,000 in income tax for 2012. For the majority of us, paying taxes is simple. Your company automatically takes deductions out of your paycheck that pay for your income tax.

If you are a contractor or self-employed, it’s important to remember that not all the money you earn is yours. Make sure to set aside a certain percentage of each paycheck that you will use to pay your taxes at the end of the year. Try to estimate your expected income and taxes for the year and set up a separate account that you can use to settle your tax bill. If possible, get some guidance from an accountant on how to pay your estimated taxes quarterly.

3. Set up an emergency fund

Kelly works in a profession in which rapid changes in income are quite common. One month you are earning $40,000 per month for being on a hit show, the next month your character is written off the show or the show comes to an end and you no longer have any income coming in. In any field in which income tends to drastically change, it is especially important to set aside an emergency fund to help account for the uncertainty in income stream.

While the majority of us likely have more certainty about how much we expect to earn in the future, it is still important to set aside some funds in an emergency account. Whether you are an actor or an office worker, there is always some uncertainty about the future, and having an emergency account can make it easier to ride the ups and downs as you encounter them.

While Kelly Rutherford’s bankruptcy is sad and alarming, there are lessons we can derive from it to make us all more prudent about our financial future.

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